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Friday, October 10, 2014

SPX, INDU, NYA: Bulls Take a Beating

A lot of folks thought I was nuts back on October 6, when I said that the decline from the all-time high appeared impulsive to my eye, and that I felt that bullish calls for new highs were premature. But I doubt I'm in the minority any more.

On October 6, I also outlined that my "best guess" was for the market to retest the low, then rally strongly in a double-retrace. It did just that, but the subsequent rally failed to break the 1977 high, which would have been the typical expectation of the pattern. If 1970 holds, then I think our best bet is to view that as a somewhat-rare running flat, wherein the c-wave fails to exceed the a-wave high (in this case, 1977).

Yesterday had all the hallmarks of the start of a third wave decline, since the majority were caught looking up while the market dropped relentlessly. However, perhaps counter-intuitively, there is still an option for a rally back to that zone north of 1977.

In a normal market, I would just say that the third wave has started and be done with it. But in this market, I am staying extremely alert to the rally option. This is the type of pattern you really can't call in advance; it's enough to stay aware of it in order to make any necessary adjustments in real-time.

Below is the SPX 30-minute chart, which discusses this option in more detail:

The above-noted near-term bull potential would be very frustrating for bears who are already short and who don't remain nimble, but would be a blessing for bears who are looking for an opportunity to get short.

The SPX 2-hour chart ignores the above-option for purposes of keeping the chart clean, and notes the intermediate targets. The intermediate count will most likely remain bearish in the event of the more complex flat and near-term rally discussed above.

INDU's chart also discusses the near-term bull count, which at the present price point is still about a 50/50 shot, and notes (in passing) the lone remaining intermediate bull count. While I'm alert to the near-term bull option, I am currently discounting the intermediate bull count heavily enough that I'm not going to discuss it in any detail unless it becomes appropriate to do so.

NYA was one of the markets that kept me in the bear camp when many were turning bullish, and there were no surprises at all here over the past week:

In conclusion, I cannot confirm or deny the near-term bull option until the pattern develops a bit further, but I wanted to call it to readers' attention, because it's definitely something to remain aware of. Regardless of how the near-term plays, I still remain intermediate bearish until further notice. Trade safe.

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